ConvertArb

I’m still alive. Anybody got $100MM, I know of positions where your BK risk is 2% on one year horizon and returns generate 20%+. The only requirement is one year lockup as mark to mark is killing every hedge fund out there.

Take a check? Glad to see you are still alive.

Yeah thanks FASB157!

VIX >80 that’s really really good for converts, wait, no it’s not, or is it… what’s a bond floor? what so you say my convertible is implying 0% volatility while the realized 90 day is 90%, and listed options Leaps are implying 60%… what’s value mean?

Anyone buying options now with VIX over 80 is nuts!!! I sure would be a seller :wink:

The VIX could be 500 and it doesn’t matter if you can’t short the stock, can’t hedge the default risk because the counterparty risk on CDS is just as high as the default risk, and the company goes bankrupt anyway.

bigwilly Wrote: ------------------------------------------------------- > Anyone buying options now with VIX over 80 is > nuts!!! I sure would be a seller :wink: So get in there and sell. Betting on vol mean reversion is a tough game.

Without factoring in future bond price appreciation (i.e. your bond return ~ ytw), 20%+ return assume that the bond is trading in the sub 60 range. Most companies in the sub 60 range are either A. Financial companies or B. Highly levered. 2% BK = not likely. I doubt there are any company that have bonds trading in the sub 60 category and yet have <2% BK risk (maybe BOA preferred at one point)… Would love to hear, if you disagree.

JoeyDVivre Wrote: ------------------------------------------------------- > The VIX could be 500 and it doesn’t matter if you > can’t short the stock, can’t hedge the default > risk because the counterparty risk on CDS is just > as high as the default risk, and the company goes > bankrupt anyway. what about shorting other straight outstanding bonds… also, some converts are modeling bankruptcy model implying a much higher delta, so you put on convert on a theoretical 80% hedge, if bankruptcy then stock --> 0 and you own the bonds at 8% on a neutral basis, historically payout on BK has been 30-40% on the dollar but let’s discount that to 15% in this environment. You make 7 points on BK, else if nothing happens, you collect 20% on standstill. Worst Case is stock rallies 100%+, and credit get’s worse… (what happen after they announced no more shorting financials…)

Are there any ETFs that track VIX? That would be nice.

swtxlady Wrote: ------------------------------------------------------- > Without factoring in future bond price > appreciation (i.e. your bond return ~ ytw), 20%+ > return assume that the bond is trading in the sub > 60 range. Most companies in the sub 60 range are > either A. Financial companies or B. Highly > levered. > > 2% BK = not likely. I doubt there are any company > that have bonds trading in the sub 60 category and > yet have <2% BK risk (maybe BOA preferred at one > point)… > > Would love to hear, if you disagree. 2% is on a dollar neutral basis. Meaning if stock --> 0, where do you own the convertible bond assuming no P&L, I found one name that you put on a 90% hedge will dollar nuke to 2%.

Except that redemptions force you to dump your positions into really illiquid markets causing the markets to stumble still further causing more redemptions. If you can get that 1 year lock-up and you believe this will be fixed (or you will have a new career), it’s a great gig.

JoeyDVivre Wrote: ------------------------------------------------------- > Except that redemptions force you to dump your > positions into really illiquid markets causing the > markets to stumble still further causing more > redemptions. If you can get that 1 year lock-up > and you believe this will be fixed (or you will > have a new career), it’s a great gig. yes, the name i found matures in 1.5 years, also gotta watch the PB from freezening my assets or restricting the amount of leverage I can use. ehhh…maybe everyone should just stick to cash and collect 3%.

It’s really nasty that what ought to be a great business right now has this nasty uncertainty of what customers and other funds are going to do. Maybe Citadel will go out of business. That would smack the converts pretty good…

> > 2% is on a dollar neutral basis. Meaning if stock > --> 0, where do you own the convertible bond > assuming no P&L, I found one name that you put on > a 90% hedge will dollar nuke to 2%. Oh i see. thanks